1. Field of the Invention
The present invention relates generally to the field of unemployment insurance, and, more particularly, the present invention relates to the calculation and utilization of unemployment risk scores in the unemployment insurance industry.
2. Description of the Background
Unemployment is a reality, and it can happen to any employee at almost any time. Presently, employees do not have access to any scientific unemployment risk score to assess their employee unemployment probability or any evaluation tools or techniques to analyze and manage their unemployment risk. At the same time, employees do not have any alternative to government unemployment insurance, e.g., a source for securing additional unemployment insurance from non-government insurers, through which the employee may lessen the financial burden of termination.
As of August 2003, there is only one provider of unemployment insurance to employees—the United States government. No other type of unemployment insurance is commonly available to employees either from the government or a private concern, and hence there exists a real need for additional unemployment insurance alternatives for employees.
The unemployment insurance program is a federal-state partnership based upon federal law but administered by state employees under state law. This federal-state unemployment compensation (UC) program, created by the Social Security Act of 1935, provides temporary and partial wage replacement to only those employees who have become unemployed through no fault of their own, who are able to work, who are available for work, and who are actively seeking work.
The government unemployment insurance (UI) program is funded almost entirely by employers through federal and state unemployment taxes paid through payroll taxes. Employees are not required to make any insurance premium payments under this program, except in 3 states, and unemployment compensation is paid to those employees who meet the eligibility requirements set by employee states.
Government unemployment compensation (UC) benefits, though helpful, are insufficient to maintain an adequate standard of living. For example, the government unemployment insurance program replaces only a portion of eligible unemployed employees' lost income for a limited time, which is typically 26 weeks. Studies show that since 1990, the percentage of lost income replaced by government UI benefits across the 50 states has fallen five percentage points, and in 1999, UI benefits replaced only 33% of an average employee's lost earnings.
Some employers do offer some form of unemployment benefits when an employee's job is terminated involuntarily. Such unemployment compensation typically is in the form of a one-time severance payment and is mostly based on some pre-negotiated agreement or as part of the standard corporate HR policy of the employer. However, the severance is typically a one-time payment ranging between 2-4 weeks of salary.
Employees can manage their unemployment-related monetary risk by purchasing credit protection insurance, enrolling into credit protection plans or by buying event or asset-specific insurance (e.g., mortgage insurance). These plans insure the employee from the negative consequences arising out of non-payment of their monthly or scheduled payment obligations due to unemployment. Typically, these insurance and credit protection programs are specific to the payment obligations related to the company offering this protection or insurance, and they do not make any cash disbursements to the person in case of unemployment.
Unemployment is almost always undesirable and can impose significant financial hardship on the unemployed and their families, particularly if the unemployment is involuntary through no fault of the employee (e.g., due to layoffs, mergers, acquisitions, restructuring, and/or closure). Studies show that presently, of the average number of total unemployed each month, involuntary job losers are about 44% (currently about 3.5 million people), and the current average duration of unemployment is over 17 weeks.
The unemployment rate has recently increased significantly, and millions of Americans who are suddenly involuntarily unemployed are finding that their families cannot survive on government unemployment insurance alone. Current government UI benefits are inadequate for an average employee to maintain a safe and decent standard of living based on realistic local costs faced by families for food, housing, child care, health care, tuition, car, mortgage, credit cards, transportation, taxes, and other necessary expenses.
The average weekly government UI benefit amount for 2001 was just $237 per week. According to published studies in virtually every state, UI benefits for a typical employee with children will fall short of what a family needs to meet its living expenses.
For example, studies show that at current UI benefits level, a single working parent with two children will fall $1,317 short each month of the amount of money needed to maintain a minimal, no-frills living standard. In a two-parent, two-child family with one full-time and one part-time employee, UI benefits (for the full-time employee) will be $334 lower each month than the amount needed to meet basic needs. Further, estimates do not include the extra expenditure that the unemployed person might incur for procuring non-employer supported healthcare insurance and for expenses related to a job search.
Hence, there exists a definite need for better unemployment insurance coverage for employees so that they can manage their financial needs during involuntary unemployment situations without having to make unnecessary compromises that might have consequences that threaten the safety, security and well-being of the employee, their families and the communities in which they live. Without adequate unemployment insurance, employees also fail to contribute positively to a healthy consumer spending rate which is necessary for the nation's economic stability in times of an economic downturn.
Private unemployment insurance is a very complex and difficult subject, and the proof of the complexity lies in the fact that thus far no private concern has made such insurance available to the public. The present invention preferably addresses many problems and challenges inherent to the provision of private unemployment insurance to employees.
Some industry experts and persons of the trade believe that private unemployment insurance has not been available to employees because of one, many, or all of the following reasons: (a) the loss risks associated with such a private insurance program are perhaps not manageable by a non-government entity; (b) major risks include adverse selection and moral hazard, both of which are very difficult to address and overcome; (c) pricing of premium may be very complex and challenging; (d) estimation of losses may be very complex and difficult; (e) design and administration of policy benefits is very complicated and difficult; (f) capital requirements for the private entity providing such insurance may be prohibitive due to very high loss reserves required for periods of economic slowdown; (g) state and federal regulations may be restrictive to the private insurers; (h) the federal-state provides mandatory unemployment insurance for all employees and because such a program exists, there is little room for private unemployment insurance; (i) economic downturns could result in large number of claims that may be difficult to forecast and manage; and (j) unemployment insurance products when offered by a private entity that has only one such product line may not be sufficiently diversified to manage losses arising out of extraordinarily high number of claims during recessions, depressions, etc.
Although these are all valid concerns and there are enormous business risks involved in providing private unemployment insurance, as is the case with any insurance business, the present invention, in its preferred embodiments, addresses one or more of the above-mentioned concerns, as explained below. Specifically, the present invention, is generally directed to the calculation of unemployment risk scores for employees and the provision of supplemental or primary private unemployment insurance to employees when they lose their jobs involuntarily. More particularly, the present invention pertains to systems and methods for predicting unemployment risk using a risk index and score and methods and apparatuses for writing policies to insure employees against the occurrence of a specified unemployment condition, such as an involuntary termination or involuntary loss of employment for a specified period of time. These systems and methods provide private unemployment insurance in a manner which gives employees a choice, control, and flexibility with respect to their desired level of income if, and when, they become involuntarily unemployed.